President Trump has a lot to say and Tweet about; the media and public at large have a lot to say and write about the president. While on Air Force One he sent this message: “highest stock market in history... The reason our stock market is so successful is because of me”. The Liberal-leaning media has retaliated and delighted in pointing out that Mr Trump has also presided over one of the steepest annual falls in the value of the US dollar. Against a basket of major currencies, it shed 11 per cent of its value from January 2017’s peak; they then fail to explain that the move started from the dollar’s strongest level since December 2002. Swings and roundabouts, with dollar weakness causing share price rallies?
What I can say is that the greenback has lost ground against nearly every currency I monitor – except the tattered and tired Turkish lira, which managed to end the year 6 per cent lower against the dollar, and the Brazilian real’s 3 per cent. At the other end of the spectrum the euro was up 14 per cent and the Korean won gained 12 per cent. Reuters reports that “hedge funds have kicked off 2018 with their biggest bet ever on the euro rising, but with positioning so stretched [$19.3bn worth of futures contracts it] could backfire in the near term”.
We’ll look at the charts and try to decide. The dollar index chart was in last week’s piece and we suggest that a sustained break below the pivotal long-term support area around 92.00 is likely to cause another 10 per cent drop. The euro’s picture is one where it’s broken out of the 2015 to June 2017 straightjacket; this now forms an important base on which to build further gains and we’d pencil in a rally to $1.2500.
Sterling’s picture continues to be clouded by Brexit; risks and advantages seized on by opposing camps. Cable’s chart formed a small triple bottom in Q4 2016 and Q1 2017 and since then has retraced a Fibonacci 61.8 per cent of post-referendum decline. The whole move is a rounded base with a one-off slide on the left-hand side. A weekly close above $1.3650 should set off the next step of the rally, targeting $1.4500 in the short term, and possibly the psychological $1.5000 in the long term.
The Japanese yen is quite a different beast, monitored continuously by local exporters, interfered with by politicians and their sidekicks at the central bank. Deliberately devalued starting December 2012, it’s now reached an uneasy equilibrium between 108 and 120 yen per US dollar. The yen should also appreciate against the dollar, probably reaching the 100 mark at best, dragging its feet along the way as the authorities micro-manage so many aspects of the economy.
Turning our attention down under, the Australian dollar and its rather complicated chart. Here too we can see the slow grind higher from January 2016’s low. The rally has held in a wide channel that forms the right-hand side of an irregular rounded base. A sustained break above $0.8000 (US cents per Australian dollar) could trigger a sharp spike to $0.8800 followed by a retreat to the $0.8400 area.
As always, my views are based purely on technical analysis and I know that often I’m not in tune with economic fundamentally-based forecasts.
